India Introduces Stringent Tax Regulations Targeting Undisclosed Cryptocurrency Gains, Imposing Penalties of up to 70%

The Indian government has introduced stringent tax regulations targeting undisclosed cryptocurrency gains, imposing penalties of up to 70%. This move is part of new amendments under Section 158B of the Income Tax Act.

In a bid to strengthen cryptocurrency taxation and ensure compliance, the Indian government has introduced stringent tax amendments targeting undisclosed crypto gains with penalties of up to 70%.

This move comes as part of the new amendments under Section 158B of the Income Tax Act, as announced by Finance Minister Nirmala Sitharaman in the Union Budget 2025.

The decision underscores India’s growing focus on monitoring virtual digital assets (VDAs) and ensuring tax compliance within the crypto sector.

Here's a summary of the key points:

Inclusion of Cryptocurrencies Under Section 158B:

In a significant policy shift, cryptocurrencies have been included under Section 158B of the Income Tax Act, which deals with undisclosed income.

This amendment aligns with the government's broader efforts to track and regulate digital assets, reinforcing the requirement for investors and traders to report their crypto earnings transparently.

Crypto Defined as a Virtual Digital Asset (VDA):

The new amendment clarifies that cryptocurrencies fall under the definition of Virtual Digital Assets (VDAs).

According to the updated Income Tax Act, “Crypto asset has been defined in section 2(47A) of the Act under the existing definition of Virtual Digital Asset[…] A reporting entity, as may be prescribed under section 285BAA of the Act, will be required to furnish information of crypto asset.”

This means that any entity engaging in cryptocurrency transactions will be required to report such activities to the Income Tax Department, ensuring greater oversight of digital financial transactions.

No Changes to the Existing Crypto Tax Regime:

Despite the new amendments, the budget did not propose any changes to the existing tax structure on cryptocurrency transactions.

The 30% tax on crypto income and the 1% Tax Deducted at Source (TDS) on crypto transactions, which were implemented in July 2022, remain unchanged.

These measures continue to act as a compliance mechanism, deterring speculative trading and promoting financial transparency in digital asset investments.

Government’s Intention to Monitor Crypto Transactions:

While cryptocurrencies remain unregulated in India, the introduction of a dedicated section for VDAs in the Income Tax Return (ITR) forms for FY 2023-24 signaled the government's intent to closely monitor crypto transactions.

This move has further solidified the notion that the Indian authorities are taking proactive steps toward tracking digital asset movements and ensuring tax adherence.

Implementation of 1% TDS on Virtual Digital Assets:

Since July 1, 2022, the government has enforced a 1% TDS on all transactions involving virtual digital assets, including cryptocurrencies, under Section 194S of the Income Tax Act.

This measure was introduced despite the absence of comprehensive regulations for emerging digital assets, reflecting India’s cautious approach toward the crypto sector while ensuring tax revenue generation from such transactions.

70% Penalty on Undisclosed Crypto Gains:

According to the newly introduced tax amendments, crypto gains that remain undisclosed for up to 48 months after the relevant tax assessment year may be subject to penalties of up to 70%.

The official document detailing the penalties states:

“70% of the aggregate of tax and interest payable on additional income disclosed in the updated income tax return [ITR].”

This provision aims to deter tax evasion within the crypto industry by imposing severe financial penalties on individuals and businesses that fail to declare their crypto-related income.

Regulatory Pressure Leading to Crypto Exchange Suspensions:

The amendments come in the wake of increased regulatory scrutiny on cryptocurrency exchanges operating in India.

Notably, on January 10, 2025, the Bybit exchange suspended its services in India, citing regulatory pressure.

The exchange continues to seek a full operational license from India’s Financial Intelligence Unit, highlighting the challenges faced by crypto platforms in navigating India’s evolving regulatory landscape.

Mandatory Reporting of Crypto Transactions:

Finance Minister Nirmala Sitharaman has also proposed the insertion of Section 285BAA in the Income-tax Act, 1961, which mandates the furnishing of transaction details related to virtual digital assets.

This amendment reinforces the government's stance on transparency and compliance in the crypto sector.

Conclusion:

India’s latest tax amendments signal a more structured approach toward cryptocurrency taxation and compliance.

By imposing hefty penalties on undisclosed crypto gains and mandating transaction reporting, the government is taking definitive steps to ensure tax transparency in the digital asset space.

While regulatory uncertainty persists, these measures indicate a clear intention to integrate cryptocurrencies into the formal financial system under strict oversight. Investors and traders in India must stay informed and ensure full compliance with the evolving tax laws to avoid significant penalties.